The maxim of Denning LJ in Lazarus Estates Ltd v Beasley [1956] 1 ALL ER 341 at 345 that ‘fraud unravels everything’ is well-established. But how does the maxim find application to a spousal consent provided by a surety in purported compliance with the provisions of s 15(2)(h) of the Matrimonial Property Act 88 of 1984 (MPA)? And how does the maxim affect the exception under s 15(6) of the MPA where the suretyship is concluded by a spouse in the ordinary course of her profession, trade or business?
These questions, among others which are not discussed herein, were considered by Cowen J sitting in the Gauteng Division of the High Court, Pretoria in the matter of Singh. The judgment confirms that the maxim is not absolute, and the facts of the matter, including those referred to in the judgment as ‘information grounding a suspicion of a web of fraud and dishonesty’ (para 5), serve as an example for the justification of the qualification of the maxim, referred to by the Constitutional Court in Absa Bank Ltd v Moore and Another 2017 (1) SA 255 (CC) at para 39, where it was held that the maxim ‘is not a flamethrower, withering all within reach. Fraud unravels all directly within its compass, but only between victim and perpetrator, at the instance of the victim. Whether fraud unravels a contract depends on its victim, not the fraudster or third parties.’
The respondents in Singh – Nishani Michelle Singh (Nishani) and Stephen John Killick (Killick) were married to each other in community of property. Investec Bank Limited (Investec) sought an order placing the joint estate of Nishani and Killick in provisional sequestration. Nishani and Killick opposed the application separately. Killick instituted a counter-application for the return of nearly R1 million that Investec has retained from Killick’s private bank account held with Investec, to be set-off against the debt of the joint estate to Investec, exceeding R 189 million and R 281 million, respectively. Killick also sought a stay of the application pending the determination of an action to declare guarantees provided by Nishani to Investec void on the basis that Investec breached its duty of care to Killick (because his spousal consents were forged).
Investec alleged that the joint estate’s indebtedness arises from various guarantees and suretyships Nishani provided for the indebtedness of her businesses, BIG Business Innovations Group (Pty) Ltd (BIG) and I2 Infinite Innovations (Pty) Ltd (I2 Infinite). I2 Infinite is a property holding company. Nishani pursued her multi-million Rand business and professional affairs locally through BIG and in Ghana through Ghana Infrastructure Company Limited (GIC). BIG is the sole shareholder of GIC. Investec believed that a fraud was perpetrated on Investec by Nishani and her brother (Rushil Singh) in relation to some guarantees provided to Investec for the indebtedness of BIG, which came to light during an insolvency inquiry into the affairs of BIG. Investec initiated the inquiry pursuant to Stanbic Bank Ghana Limited’s refusal to honour two demand guarantees supplied by Nishani and Rushil Singh to Investec, on the basis that they ‘were fake or forged’ (para 5).
In terms of s 15(2)(h) of the MPA a spouse married in community of property is prohibited from concluding a suretyship without the written consent of the other spouse. Section 15(6) of the MPA presents an exception to s 15(2)(h) to the extent that the suretyship is concluded by a spouse in the ordinary course of her profession, trade or business. Section 15(9)(a) of the MPA provides that:
‘When a spouse enters into a transaction with a person contrary to the provisions of subsection (2) or (3) of this section …, and –
(a) that person does not know and cannot reasonably know that the transaction is being entered into contrary to those provisions …, it is deemed that the transaction concerned has been entered into with the consent required in terms of the said subsection (2) …’.
It was common cause, ‘at least between Investec and Killick, that Killick himself is the victim of fraud and forgery’, because some of his spousal consents were forged (para 7).
Killick submitted that the s 15(6) exception does not avail Investec, inter alia, because of the fraudulent circumstances surrounding the guarantees. The court did not accept this submission and noted that it was not Killick’s case that the guarantees were invalid as a result of any fraud or forgery (para 66). Killick’s case was that, in the circumstances of the matter, the guarantees did not qualify as being in the ordinary course of Nishani’s business because of the fraud surrounding the spousal consents (para 70) and, therefore, Killick’s consent was required to bind the joint estate, but such consent had not been obtained. However, Killick did not seek to rescind the guarantees on the basis of the alleged fraud. He contended that the fraud means that the spousal consents were not supplied in the ordinary course of business (para 71).
The court opined that Investec did not lose protection under s 15(6) as a result of the parties having agreed that spousal consent was required for the guarantees (para 68). The court held that: ‘Banks or other third parties may well opt to obtain spousal consents to inter alia suretyships as a matter of caution, even if they are not legally required. On its own, such cautionary conduct cannot, in my view, deprive banks or other third parties of the protections of section 15(6), if it is subsequently found that there is a defect in the consent so obtained’ (para 69).
Although the court stated that there is of course nothing ‘ordinary’ in conducting business in the circumstances of the matter, because it cannot be ‘“ordinary” business practice to forge’ spousal consents, the evidence shows prima facie that the spousal consents were forged at the instance of BIG or some of its employees, ‘to the detriment of both Investec and the joint estate’ (para 73). This did not, however, mean that the suretyships were beyond the ordinary course of Nishani’s business (para 74). According to the court, s 15 ‘strikes a balance between the interests of third parties and the interests of spouses’ with a joint estate. Significantly, the court held that: ‘The section 15(6) exception, however, serves to ensure that the normal course of trade is not unnecessarily impeded or restricted and protects third parties who conduct business with a married person in respect of a narrow category of transactions, including the provision of suretyships, a lifeblood of commerce’ (para 75).
The court held further that an interpretation of the ‘ordinary course’ provision which focuses on whether the transaction is tainted by fraud ‘… would ultimately unnecessarily impede or restrict the ordinary course of trade and business, for which the provision of suretyships, as one relevant transaction, is often a lifeblood. The interpretation would also generate profound uncertainty into business and commerce to the detriment of all players. Moreover, it would create an absurd scenario – and one that would defeat public policy – that a third party who wishes to bind a joint estate but is aware a transaction may be tainted by fraud, can seek to do so by ensuring a spousal consent is obtained’ (para 77).
The court accordingly granted a provisional sequestration order against the joint estate.
The court, in our respectful view, correctly applied the principles set out by the Supreme Court of Appeal in Amalgamated Banks of South Africa Bpk v De Goede en ‘n Ander 1997 (4) SA 66 (SCA) and Strydom v Engen Petroleum Ltd 2013 (2) SA 187 (SCA) at paras 10, 11, 13, 16, 17 and 19 in, essentially, finding that the provision of forged spousal consents did not exclude Investec from the protection afforded by s 15(6). In Strydom an argument was raised that the onus rested on the creditor, Engen, to prove that Mr Strydom had nonetheless bound himself as surety in the ordinary course of his business. Wallis JA rejected this argument and held that (para 13): ‘… it does not suffice for a person seeking to rely on s 15(2)(h) to say that they were married in community of property and that their spouse did not consent to the transaction in order to bring themselves within the ambit of the section’. Wallis JA held that ‘the only person who could testify to these matters was Mr Strydom himself’ (para 19).
In Singh, the spouse who concluded the suretyship (Nishani) did not attempt to bring herself within the operation of s 15(2)(h). Killick attempted to do so, even though on his version he had no or little knowledge of Nishani’s business and dealings, but in any event could not do so, because – as per Strydom, Nishani was the only person who could testify to these matters.
We have little doubt that the finding in Singh that the s 15(6) exception should not impede or restrict suretyships – ‘a lifeblood of commerce’ (para 75), will be welcomed by creditors. So too, we suspect, the finding that an interpretation of the ordinary course exception which focuses on whether the transaction is tainted by fraud, places ‘an undue burden on third parties’, namely, creditors (para 77).
Another aspect of Singh that would be encouraging to creditors is the confirmation that cautionary conduct on its behalf, such as requiring spousal consents to suretyships – despite it not being a legal requirement, should not deprive creditors of the protection of s 15(6) if a defect in such consent is subsequently found (para 69).
The facts of the matter in Singh and the manner in which the court applied the relevant legal principles to those facts in the circumstances of that matter, demonstrate that although it is so that fraud unravels all, it is not always a conclusive answer to a creditor’s claim, and particularly not in circumstances where s 15(6) affords the creditor protection against fraudulent or forged spousal consents.
Johan Smit SC BCom (Law) LLB (UP) is a senior advocate at the Pretoria Bar. Gian Louw LLB (RAU) LLM (UJ) is an advocate at the Johannesburg Bar.
This article was first published in De Rebus in 2024 (Nov) DR 45.
